# Accounting 101 for Beginners: Basic Terminology & Definitions

_Published on 2020-11-18_

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If you do not receive this email, please check your junk email folders and double-check your account to make sure the application was successfully submitted. We offer self-paced programs (with weekly deadlines) on the HBS Online course platform. Regardless of where you log on or open up your textbook, completing coursework on a regular cadence will allow you to make steady progress toward your educational goal. In fact, I’ve only ever officially met one of my clients — the rest I work with purely over email. Because of that, I collect most of my payments through an online gateway. Depending on the nature of your business, how you collect money will vary.
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These systems can be cloud based and available on demand via application or browser, or available as software installed on specific computers or local servers, often referred to as on-premise. Even if you opt to use accounting software or hire a professional, use the tips we’ve reviewed in this guide to understand accounting basics. As important as it is to understand how business accounting works, you don’t have to do it alone. Similar to other processes and strategies across your business, you’ll want to constantly review and evaluate your accounting methods. You might start your business accounting recording every transaction.
<h2>Want More Helpful Articles About Running a Business?</h2>
Just as managerial accounting helps businesses make decisions about management, cost accounting helps businesses make decisions about costing. Essentially, cost accounting considers all of the costs related to producing a product. Analysts, managers, business owners, and accountants use this information to determine what their products should cost. In cost accounting, money is cast as an economic factor in production, whereas in financial accounting, money is considered to be a measure of a company’s economic performance. As a result, all professional accounting designations are the culmination of years of study and rigorous examinations combined with a minimum number of years of practical accounting experience.

Reducing your COGS can help you increase profit without increasing sales. It’s a critical component when calculating and managing your cash flow. Many small business owners do a combination of bookkeeping and accounting. We wrote this accounting guide to ease you into the world of business accounting.
<h2>What is business accounting?</h2>
Explore how an accounting certificate can give you the skills you need without a large upfront commitment. See the world through the lens of economics and gain the knowledge <a href=”https://www.bookstime.com/articles/bookkeeping-for-franchises-the-complete-guide”>bookkeeping for franchisees</a> and skills to craft successful business strategy. Build an intuitive understanding of finance to better communicate with key stakeholders and grow your career.
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Variable costs are expenses that can change depending on the volume of goods produced or sold by a company. For example, a manufacturer would incur higher costs if it doubled its product output. Companies may also face higher tax rates as their sales and profits rise. By comparison, fixed costs remain the same regardless of production output or sales volume. It is essentially a way of adjusting future revenues, expenses, and debts for inflation.
<h2>Analyzing Financial Statements</h2>
By law, accountants representing all publicly traded companies must comply with GAAP. In accounting terms, profit — or the “bottom line” — is the difference between your income, COGS, and expenses (including operating, interest, and depreciation expenses). A credit is a record of all money expected to come out of an account. Essentially, debits and credits track where the money in your business is coming from, and where it’s going. These 15 terms will create the foundation on which you’ll build your knowledge of business accounting.

Ideally, you should complete your bookkeeping every month so you can keep a thumb on the pulse of your income, expenses, and overall business performance. Some companies decide to combine operating (OPEX) and SG&A expenses while some separate them (they can be combined on an income statement). Look for a bank that has a local branch as well as robust online banking. Also, be sure the bank can integrate with your point-of-sale (POS) system and other technological needs. Business bank accounts typically charge more than personal accounts and often have a higher minimum balance.
<h2>Learn</h2>
A few examples of this information are budgets, standards for controlling operations, and estimating selling prices when quoting prices for new work. The start and end dates of your fiscal year are determined by your company; some coincide with the calendar year, while others vary based on when accountants can prepare financial statements. The second set of rules follow the cash basis method of accounting. Instead of recording a transaction when it occurs, the cash method stipulates a transaction should be recorded only when cash has exchanged. Because of the simplified manner of accounting, the cash method is often used by small businesses or entities that are not required to use the accrual method of accounting.

With the flexibility of a field like accounting, expect the same with program options. Whether it’s a certificate you’re pursuing or a graduate degree, you have options for online, on-campus, or hybrid education. Cost accounting focuses on a detailed break-up of costs for effective cost control. Managerial accounting is very important in the decision-making process.

GAAP (Generally Accepted Accounting Principles) and IFRS (International Financial Reporting Standards). In most cases, accountants use generally accepted accounting principles (GAAP) when preparing financial statements in the U.S. GAAP is a set of standards and principles designed to improve the comparability and consistency of financial reporting across industries. Accountants help businesses maintain accurate and timely records of their finances.
<div style=’border: black dotted 1px;padding: 10px;’><h3>Creative disruption in accounting – Accounting Today</h3>Creative disruption in accounting.Posted: Mon, 23 Oct 2023 15:15:00 GMT [<a href=’https://news.google.com/rss/articles/CBMiRmh0dHBzOi8vd3d3LmFjY291bnRpbmd0b2RheS5jb20vbmV3cy9jcmVhdGl2ZS1kaXNydXB0aW9uLWluLWFjY291bnRpbmfSAQA?oc=5′ rel=”nofollow”>source</a>]</div>
It’s also a good idea to set your fiscal year when you start your business. The working accountant is compliant with GAAP rules and regulations. The Generally Accepted Accounting Principles (GAAP) are a blueprint for accounting across sectors and industries in the U.S. The Financial Accounting Standards Board (FASB) established the GAAP to uphold quality standards for accounting activities. To calculate your burn rate, simply pick a time period (such as a quarter or a year).

Double-entry systems add assets, liabilities, and equity to the organization’s financial tracking. A certified public accountant (CPA) is an accounting professional specially licensed to provide auditing, taxation, accounting, and consulting services. Cash flow (CF) describes the balance of cash that moves into and out of a company during a specified accounting period. Examples include bank loans, unpaid bills and invoices, debts to suppliers or vendors, and credit card or line of credit debts. Rarely, the term “trade payables” is used in place of “accounts payable.” Accounts payable belong to a larger class of accounting entries known as liabilities. A background in accounting can also lead to a career as an auditor, employed within a company or by an outside organization to examine financial records and identify signs of mismanagement, waste, or fraud.
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# Accounting 101 for Beginners: Basic Terminology & Definitions

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